Canadian Economy May Get Out Of the Crisis Faster Than Expected (Update)

In the fourth quarter of 2008 Canadian gross domestic product fell at a 3.4 percent annualized rate, the fastest pace since 1991. What is behind this unprecedented slump? What can be done to soften the slowdown?

In fact, a heavy exposure to commodities and deep trading links with the United States make the Canadian economy particularly vulnerable to a downturn in the global economy. For instance, slumping shipments of cars and lumber to the U.S., and lower prices for exported commodities have already taken its toll.

However, even though there are clear signs of deterioration in the world's eighth largest economy, we think Canada is in a much better condition than other countries. For instance, balance sheets in the Canadian financial sector look pretty good with the ratio of deposits to total liabilities as high as 70 per cent. Moreover, the six biggest Canadian banks have only suffered $8bn of write downs and have an average tier one ratio of 10 per cent. More importantly, the government and central bank are taking measures to improve credit availability and spending. The overnight interest rate was cut to 0.5 per cent and a C$40bn fiscal stimulus package was introduced at the end of January.

Anna Fedec, contact@tradingeconomics.com3/3/2009 1:00:18 PM

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